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By John T. Lutz, William R. Pomierski, Kevin Spencer and McDermott Will & Emery on May 6, 2021
Posted In IRS Guidance, Tax Reform
On April 9, 2021, the Internal Revenue Service (IRS) released Chief Counsel Advice memo 202114020 (Hard Fork CCA), which details the potential tax consequences for taxpayers who held Bitcoin prior to the August 1, 2017, Bitcoin hard fork. While the Hard Fork CCA concerns the taxation of a particular cryptocurrency transaction, it has additional significance...
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DOJ and IRS’ Analysis of Crypto Records and Work with Private Experts and International Partners Leads to Arrest
By Katharine Suominen and McDermott Will & Emery on Apr 30, 2021
Posted In IRS Guidance, Uncategorized
US law enforcement continues to make no secret of their efforts to work closely with experts and overseas partners to prosecute those involved in virtual currency transactions who attempt to rely on its purported anonymity to commit financial crimes. Tuesday’s arrest of Roman Sterlingov, a dual citizen of Russia and Sweden and alleged operator of...
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Finding John Doe: IRS Steps up Enforcement Efforts to Take the Anonymity Out of Virtual Currency
By McDermott Will & Emery on Apr 21, 2021
Posted In Court Procedure Matters, IRS Audits, IRS Guidance, Trial Courts
The Internal Revenue Service (IRS) is stepping up its virtual currency enforcement, and taxpayers who have engaged in a cryptocurrency transaction should immediately assess any potential tax implications as the IRS has recently issued two John Doe summonses to popular exchanges. These are the first it has issued in about three years, sending a very...
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Are Crypto Loans Taxed as Loans?
By McDermott Will & Emery on Sep 18, 2020
Posted In IRS Guidance, Tax Reform
Transactions involving the borrowing and lending of units of virtual currency (or crypto loans) are increasing in number and type. Lacking Treasury or IRS guidance with respect to crypto loans, potential tax issues that arise from these transactions must be analyzed and understood in accordance with broad, general tax principles established by case law and...
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Taxation of Virtual Currency Staking Activities
By McDermott Will & Emery on Sep 16, 2020
Posted In IRS Guidance, Tax Reform
Stakers—taxpayers involved in proof of stake (PoS) validation of blockchain transactions—are operating in uncharted tax waters. Treasury and the IRS have provided no guidance regarding when or whether staking rewards are included in taxable income. This article reviews various considerations that may help stakers document activities, rewards and expenses that support their federal and state...
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Final Section 468A Regulations Issued at Last
By Brian Moore and McDermott Will & Emery on Sep 11, 2020
Posted In IRS Guidance, Tax Reform
On September 4, 2020, the Internal Revenue Service (IRS) and the US Department of the Treasury (Treasury) published in the Federal Register final regulations under section 468A of the Internal Revenue Code (the Code) that address three issues raised by the nuclear electric industry concerning qualified nuclear decommissioning funds (“qualified funds”). These final regulations conclude a many...
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Taxation of Virtual Currency Mining Activities
By McDermott Will & Emery on Sep 11, 2020
Posted In IRS Guidance, Tax Reform
Proof of work (PoW)—one of the consensus methodologies through which blockchain (digital ledger) transactions can be validated—relies on data miners whose mining activities involve solving complex mathematical calculations. This article discusses key tax issues for miners and the IRS’s preliminary views involving taxation of Bitcoin PoW mining activities. Access the full article here.
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Can Virtual Currency Traders Elect into Special Rules that Allow Current Deductions for Trading Losses?
By McDermott Will & Emery on Sep 4, 2020
Posted In IRS Guidance, Tax Reform
Traders in virtual currency seeking to deduct trading losses and avoid application of the capital loss limitations would want to elect into the special tax rules found at IRC § 475(f). However, such taxpayers should analyze the definitions of “securities” and “commodities,” determine whether they are eligible for either of the trader elections, and consider...
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When Can Bitcoin Positions Be Taxed as Mixed Straddles Subject to the Special Mixed Straddle Rules?
By McDermott Will & Emery on Aug 31, 2020
Posted In IRS Guidance, Tax Reform
Taxpayers who enter into offsetting positions in actively traded personal property where one or more—but not all—of the positions making up a straddle are taxed as section 1256 contracts (while another offsetting position is not a section 1256 contract) are subject to the mixed straddle rules. Potential adverse consequences can be magnified or made more...
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Special Tax Rules Apply to Bitcoin Futures and Options
By McDermott Will & Emery on Aug 24, 2020
Posted In IRS Guidance, Tax Reform
Special tax rules require taxpayers to treat gains on certain virtual currency positions as taxable even though they still hold their positions. These rules apply to futures and options that qualify as section 1256 contracts, which is potentially relevant to taxpayers buying, selling and holding Bitcoin futures and options, as well as Ether futures and...
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